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Fighting Poverty in the Recovery Act

SOURCE: AP/Paul Beaty

Lynda Wheeler shops with her daughter shortly after midnight on the first of the month when her family's new food stamps are available from the Supplemental Nutrition Assistance Program.

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The recession has created hard times for millions of Americans over the last year, and the economic recovery legislation that President Obama signed into law this week will help soften the blow for the most vulnerable families while generating much needed economic activity. It will provide needed tax relief, help low-income families, create new jobs, and expand the unemployment insurance system at a time when nearly 2 million Americans have become unemployed in the last three months alone.

The American Recovery and Reinvestment Act contains a variety of provisions targeted at the neediest families; here are some of the most important:

Tax relief

The Earned Income Tax Credit: The recovery package temporarily expands the Earned Income Tax Credit—the largest federal anti-poverty program—for working families with three or more children at an estimated cost of $4.7 billion.

Child Tax Credit: The plan increases eligibility for the refundable portion of the Child Tax Credit at a cost of $14.8 billion by reducing the income threshold for eligible families to $3,000. According to estimates from the Tax Policy Center, the credit will reach nearly 3 million new children and will provide another 10 million children a larger credit than they would have received under the 2008 rules.

Making Work Pay: The package also creates the “Making Work Pay” tax credit, which will provide a refundable tax credit of up to $400 for working individuals and $800 for working families at a cost of $116.2 billion. This new credit will principally benefit the middle-class.

Aid for low-income Americans

Supplemental Nutrition Assistance Program: The recovery package includes $19.9 billion for SNAP to increase food stamp benefits by 13.6 percent. Food stamps are one of the most effective forms of stimulus. The USDA estimates that one dollar in food stamps generates $1.84 in economic activity.

Temporary Assistance for Needy Families: The package also makes available up to $5 billion for states that have increased spending on their TANF programs, which provide basic assistance, short term benefits, and subsidized employment.

Emergency shelter grants: The recovery plan provides states with $1.5 billion for emergency shelter grants that will be used to provide homeless individuals and families with basic shelter and essential supportive services.

Seniors, disabled veterans, and Social Security recipients: The plan provides $14.2 billion towards a one-time payment of $250 to retirees, disabled individuals, and SSI recipients receiving benefits from the Social Security administration, as well as Railroad Retirement beneficiaries and disabled veterans receiving benefits from the U.S. Department of Veteran Affairs.

Child Care and Development Block Grants: The bill’s $2 billion for Child Care and Development Block Grants will enable states to provide child care assistance for an additional 300,000 children in low-income families while their parents work, and it will generate paid employment for an additional 125,000 caregivers.

Head Start: The bill also provides $2.1 billion to Head Start for comprehensive development services that would help 110,000 additional children succeed in school.

Help for the unemployed

Unemployment insurance: The recovery legislation provides $27 billion to extend unemployment insurance benefits so that the long-term unemployed can continue to receive benefits through the end of 2009. The plan also includes $8.8 billion to increase UI benefits by $25 a week. The National Employment Law Project estimates that every dollar in benefits spent by workers and their families on housing, food, and other necessities generates $2.15 in economic activity.

The recovery package also temporarily suspends federal taxation on the first $2,400 of UI benefits at a cost of $4.7 billion. It provides up to $7 billion in incentives to states to modernize rules that disproportionately disqualify jobless low-wage and part-time workers. And the package also provides temporary assistance to states with advances to the UI trust funds at an estimated cost of $1.1 billion.

Conclusion

Many programs in the economic recovery legislation will push back against the trend of rising poverty and hardship that is expected to result from the recession, while promoting economic opportunity in the years to come. The package makes investments and creates jobs in several areas including education, energy efficiency, infrastructure development, and health care, and will put income in the hands of those that need it the most.

But there is still more that needs to be done to truly reverse the trend of rising poverty that began even before the economic crisis. The anti-poverty programs funded through the recovery and those that did not receive additional funding will still require solid support. That duty will fall on Congress as it begins the upcoming budget and appropriations process.

More from CAP on the recovery plan:

Recovery Bill Puts a Light at the End of the Tunnel

Interactive Map: The Nationwide Allocation of Recovery Funding

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